Welcome to Yield Report

Interest rate commentary for 9 Jan – 13 Jan 2017

YieldReport and its staff are back in the office after their Christmas break and, after a few days of catching up, we are all looking forward to the surprises which 2017 will bring.

Markets are gradually returning to normal as economists, investors, traders and observers return from school holidays. Bond markets are getting used to “decree by Twitter” but aside from this, 2017, as with every other year, will contain a multitude of challenges for those who are professionally interested as well as those who just like to keep track of what is going on.

So far, in our first week back, there has been little to rock the boat. Bond yields in both domestic and offshore markets, changed little over the week as the Trump reflation scenario faded a little. At the same time, US interest rate rises during 2017 are now taken for granted.

Close Week
Chge
Week
High
Week
Low
Cash Rate%   1.50
90day Bank Bill%   1.78  -0.01    1.78     1.78
Aust 3y Bond%*   1.99   0.01   2.05     1.93
Aust 10y Bond%*   2.72   0.00   2.81    2.66
Aust 20y Bond%*   3.36   0.01   3.43    3.33
US 2y Bond%   1.19  -0.02    1.19     1.17
US 10y Bond%   2.40 -0.02   2.40    2.36
US 30y Bond%   2.99 -0.02   2.99    2.95
iTraxx  98.0   0.50  98.5    97.8
$1AUD/US¢ 75.02  2.06 75.19  72.89
* Implied yields from March 2017 futures

Cash markets are now moving away from the idea of further rate cuts and are now bumping up the chances attached to rate rises. As the Aussie dollar drops there is less incentive for the RBA to cut rates again and, if employment fall during 2017, the official rate is expected to rise.

Changes to term deposit rates were few and far between with one exception. One deposit-taking institution raised rates on every term by an average 62bps but apart from this, there was little in the way of news here.

The run on ASX-listed hybrids and ASX-listed notes has ceased, at least temporarily. Trading margins of hybrids were stable on average, while margins on notes reversed course. Not all securities acted in this way; there is almost always an exception and this week was no different.

The corporate bond sector decided to make up for it inactivity over the Christmas period and get some bond deals away in a hurry. The major banks were especially busy but when are they not?

The semi-government bonds sector is as quiet as a mouse and generally nothing much happens in this sector until February.

We hope you enjoy reading this week’s YieldReport.

December 2016 monthly interest rate commentary

Yields on ACGBs were higher again but not to the same extent as in the previous month. By the end of the month, 3 year yields had increased by 10bps to 2.04%, the 10 year yield rose 5bps to 2.80% and the 20 year yield rose 13bps to 3.44%. These increases were not driven by local factors; most economic data released was not buoyant or indicative of higher growth rates. Instead there was a propensity to follow offshore markets and where the direction of domestic and offshore (US) yields diverged, typically an adjustment followed shortly in the days which followed.…Click here to read more

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